Kellogg sets $1 billion cost savings goal

BOCA RATON, FLA. — The Kellogg Co. has set what company executives have called an "aggressive goal" of achieving $1 billion in cost savings over the next three years through a series of initiatives ranging from a complete review of the companies indirect procurement and purchasing to implementation of a new best practices program called K-LEAN.

Speaking at the Consumer Analyst Group of New York Conference in Boca Raton on Feb. 18, David Mackay, president and chief executive officer at Kellogg, said the company hopes to have $1 billion of annual savings in 2011 that it currently does not have in 2009.

"We believe we can achieve this goal, but I would caution that with inflation and our desire to invest back in the business, that we have plenty of opportunities to actually spend the savings when we make them," Mr. Mackay said.

In order to achieve the savings, Mr. Mackay said Kellogg plans to draw from K-LEAN, which stands for Lean, Efficient, Agile, Network. The project, which started in two U.S. plants and now is being rolled out through much of North America, Europe and Latin America, is focused on driving process optimization, asset utilization and waste management.

By his own admission, Mr. Mackay said initial success of the program has surprised the company.

"We had always seen our manufacturing facilities as being world-class," he said. "We didn’t think there were real savings opportunities there. We brought in some external consultants to really challenge whether that was actually true or not and I’d have to say that we’ve been quite surprised at some of the opportunities that they’ve identified with our workforce to actually go for significant benefits over and above what we thought were possible."

He said the initiative is probably going to use a little bit more than half of the company’s 2009 up-front costs but may show some benefit accrue from around midyear.

In addition to K-LEAN, Mr. Mackay said Kellogg will undergo a complete review of its indirect procurement and purchasing.

"We’ve identified many procurement items that can be centralized with shared buying to leverage the purchasing power of the total company," he said. "These include things like globalized global I.T. where we can contract to lower consulting costs, P.C. costs and telecommunications costs. On logistics we’re optimizing our truck and intermodal shipping."

In the area of overhead, he said Kellogg will look to "simplify, standardize and automate as much of what we do as possible."

"We’re going to apply the K-LEAN approach to help us review our processes and procedures to truly simplify our work across the organization," he said. "And it’s very important when you think about what we’re doing in manufacturing, streamlining there to reduce complexity and to save costs, that we review the organization from end to end to make sure that every aspect of our business is as streamlined as possible."